handbook-tb

Chapter VIIIProtecting the tax base in the digital economyJinyan Li*1. IntroductionProtecting the tax base in the digital economy is Action 1 of theOrganisation for Economic Co-operation and Development ActionPlan on Base Erosion and Profit Shifting (OECD Action Plan onBEPS). 1 The reason is simple: “International tax rules, which date backto the 1920’s, have not kept pace with the changing business environment,including the growing importance of intangibles and the digitaleconomy.” 2 Existing tax rules are rooted in clear-cut jurisdictionalboundaries designed for businesses selling goods and services inbricks-and-mortar, physical locations. They are inapt in dealing withincome arising from the digital economy, which renders physical formand location irrelevant. The digital economy is characterized by anunparalleled reliance on intangible assets, massive use of data (notablypersonal data), widespread adoption of multisided business modelscapturing value from externalities generated by free products, and*Osgoode Hall Law School, York University, Canada. The authoracknowledges with appreciation the assistance provided by Stephen (Xiaoyi)Ji and Robert Watkins.1Organisation for Economic Co-operation and Development, ActionPlan on Base Erosion and Profit Shifting (Paris: OECD, 2013), available athttp://www.oecd.org/ctp/BEPSActionPlan.pdf. At the request of the G20Finance Ministers, in February 2013, the OECD prepared a report outliningthe BEPS issues, and in July 2013, followed up with an Action Plan, whichwas to address those issues in a coordinated and comprehensive manner.Specifically, it was to provide countries with domestic and internationalinstruments that would better align rights to tax with economic activity. TheAction Plan is organized around 15 actions, which are to be implemented bythe specified deadlines during 2014-2015.2G20 Leaders’ Declaration (St. Petersburg, 6 September 2013), paragraph20, available at https://g20.org/wp-content/uploads/2014/12/Saint_Petersburg_Declaration_ENG_0.pdf.407